COVID-19 UPDATE: White House announces alliances to vastly expand testing in next month (8mm/month, Federal). And rising opportunity cost of being "undecided" as S&P 500 100 points higher than 50% retrace.
COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage ("restart economy"), so feel free to share our commentary to anyone who has interest.
The White House briefing focused on the rapid expansion of testing capacity underway in the US. According to Admiral Giroir (designated to coordinate COVID-19 testing), the US will be able to conduct 8 million tests per month (federal level) by next month with Abbott Labs, LabCorp, Quest Diagnostics providing additional testing. In short, the US is on track to conduct 500k-750k tests per day (with private sector additions). For policymakers, and especially state governors (the NGA), this is a key gating factor to getting the economy open. Whether testing is the key factor, that doesn't matter, since it matters to policymakers.
But the broad picture is that the US private sector and policymakers have mobilized in a huge way to deal with COVID-19. And states are mostly showing improvements. As of today, 20 states have announced plans to re-open their economies in the next few weeks, with West Virginia being the most recent to announce. These states are 33% of US GDP and the largest of these states is Texas. By our analysis, 6 of these 20 have shown sustained and pervasive improvements in case count (see below) but this doesn't mean the other 14 states are not correct to open. Rather, we believe there are actually another 11 states that should be added to the 20 already -- meaning as many as 31 states should consider opening in the next few weeks. This excludes NY state.
On the healthcare side, NY Gov. Cuomo announced the results of a second serological study (this time 7,500 tests) and shows prevalence 10X official estimates and affirms mortality for NY state is 0.56% or so, way less deadly than the 5%-10% seen in official stats.
The rising opportunity cost of being "undecided" or "sidelined" on stocks...
The stock market, in the meantime, remains resilient, closing 100 points the critical 50% retrace line (2,793) and in the face of a healthy high-yield market, argues that equities have upside. This despite what we sense as widespread "uncertainty" about equities and thus, many investors remain sidelined or "undecided."
The past 4 weeks has been the most devastating gauntlet for equities -->
- COVID-19 pandemic,
- World economy shuts down,
- OPEC blows up,
- worst GDP print since the Great Depression,
- 6mm unemployed claims,
- WTI near contract goes negative at -$48 per barrel (how does that happen?)
- 1Q2020 EPS missing by 20%
Yet, the S&P 500 has managed to claw back >50% of its losses and NASDAQ is now up YTD. This resilience is telling that the consensus narrative of "economy gonna tank so gets out of stocks" is overly pessimistic. And as we highlight at the end of this note, there are positive tailwinds building as we move into May. We realize many investors were understandably expecting a "retest" of the March 2020 lows and potentially break below 2,200 towards 1,700. This could happen, but is there another gauntlet of headwinds worse than what we saw in the past 4 weeks? If not, we think it less likely to retest the lows.
POINT #1: NY announces 2nd serological study affirms prevalence 10X the "official estimate" -- NYC est. 25% prevalence. Why is NYC still closed?
Gov Cuomo in his press briefing today announced the results of the second serological study (using antibodies). This second study is expanded with 7,500 participants and is also conducted 1 week after the first study (results are announced two weeks after the testing completed). The results are consistent with the first study:
- NY state overall is estimated to have 15% of the population (+100bp from 13.9% prior study) and is 10X the official rate.
- NYC is now estimated to be 24.7% from 21.2% or up 350bp in the period between the studies. This again is 13X the official rate.
- 6 of 6 studies (below) show that using anti-body studies, the prevalence of COVID-19 is 10X to 50X to 85X greater than realized.
As noted previously, this has big implications for understanding disease severity (most are therefore showing no symptoms) and the lower "death rate" as the number of cases is vastly higher. And we also think this suggests policy options should change, with treatment > vaccine and treatment arguably > testing.
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